Articles by deBanked Staff
PaySmith is a Sponsor of deBanked CONNECT – San Diego
September 12, 2018PaySmith is a sponsor of deBanked CONNECT San Diego. The half-day event for funders, lenders, brokers and industry professionals is being held at the Andaz on October 4th!
Check out photos from deBanked’s past CONNECT event in Miami
War on Debt Settlement Continues: 16 Defendants Sued in RICO Case
September 6, 2018
Fourteen individuals and two companies (including Decision One Debt Relief) were sued by Funding Metrics in Federal court last month for allegedly “conducting a nationwide illegal debt restructuring scheme through numerous acts of mail and wire fraud.”
The suit, which stems from the defendants’ interference with Funding Metrics’ merchant cash advance customers, makes six claims, among them financial damages resulting from state and federal crimes. Per the complaint:
“Defendant Decision One (along with its affiliate/alter ego D1 Servicing) fraudulently presents itself as being able to renegotiate and restructure merchant agreements with Plaintiff and other funding companies. It has established a deceptive business practice of making misleading and often outright false representations to merchants under contract with Plaintiff promising that, with its help, these merchants will save money on those contracts by defaulting on them. Decision One tells merchants that they can safely stop paying cash advance funding companies like Plaintiff; that it will go to work for them promptly; that it can reduce their debt by 60-80% or more; and that they will be provided with a Veritas insurance plan to cover legal expenses arising from their defaults, once cash advance companies exercise their rights under agreements with their merchants, as they inevitably will. Based on these misrepresentations, the merchants default on their contracts with their funders – that is, at Decision One’s direction, they stop paying their funders and instead pay Decision One – although Decision One does not even expect to achieve results for the merchants. The result is a fraud on the merchants and tortious interference with the contracts Plaintiff have with them.”
The suit is just the latest bomb dropped on the exploding debt settlement industry. deBanked began covering the controversy surrounding debt settlement in late 2016 after the owner and employees of an upstate New York debt settlement company were arrested for charging merchants to restructure their merchant cash advances and then not actually performing any services. The owner, Sergiy Bezrukov, was charged with money laundering, bank fraud, mail fraud, wire fraud and conspiracy to defraud. Bezrukov has been locked away in jail for almost two years awaiting trial. He is facing a maximum of 30 years. Two of his employees pled guilty, Vanessa Cardona to bank fraud and Dustin Walker to conspiracy to commit bank fraud.
Since then, nearly a dozen major lawsuits have been filed by merchant cash advance companies against other debt settlement companies that are alleged to be carrying out similar schemes. One of those sued companies, NJ-based Corporate Bailout LLC, was featured on the cover of the New York Post last summer for being “the craziest office in America.” Corporate Bailout was sued by both Yellowstone Capital and Everest Business Funding which later resulted in a very public settlement agreement that forced Corporate Bailout to fork over $500,000 to the two MCA companies.
Decision One Debt Relief, sued now by Funding Metrics, was also originally a co-defendant alongside MCA Helpline in a lawsuit filed by Everest Business Funding earlier this year. In February, after determining the two were not related, Everest dropped the claims against Decision One only. The suit against MCA Helpline is still pending.
Around that same time, a representative for Decision One revealed to deBanked that the company was on track to be doing more than $100 million a year in business.
Bezrukov, by contrast, who currently resides in a Niagara County New York jail, is accused of having only obtained $1.2 million throughout his entire debt settlement venture’s existence. Although Decision One is not being charged criminally, the private civil suit alleges damages caused by a violation of criminal statutes including RICO.
The Funding Metrics suit against Decision One was filed in the Southern District of Florida under ID# 9:18-cv-81061.
The California Business Loan & MCA Disclosure Bill Has Passed
August 30, 2018The bill has passed. With the governor’s signature, all business loan contracts and merchant cash advance contracts in California will soon require a uniform set of formal disclosures including an annualized rate of the total cost. The precise formula for that rate will be determined by the state’s regulatory agency, the Department of Business Oversight.
Update: The bill’s death in committee was challenged by the bill’s author, Senator Steve Glazer, and ultimately allowed to come up for a vote after he complained to the senate majority leader that a committee’s decision is merely a recommendation, not a deciding factor on the bill itself. At 2:10 AM EST, it passed.
Update: The bill has died in the Senate Banking Committee. Daniel Weintraub, who serves as chief of staff to the bill’s author, tweeted after midnight eastern time that the bill was not moving forward.
Thanks to all who supported small business and #SB1235. Unfortunately the Senate Banking Committee killed the bill tonight. We fell one vote short of the four we needed to send the bill to the Senate floor. https://t.co/30ztdW2LbD
— Daniel Weintraub (@DMWeintraub) September 1, 2018
Update: The bill passed the Assembly unopposed and is slated for a late night vote by the Senate Banking Committee.
Update 8/31/18: Today is the last day for the legislature to pass this bill. We will keep you updated
California’s bill to mandate certain disclosures on business loan and merchant cash advance contracts is looking a little bit worse. The Annualized Cost of Capital method (Explained here) that some folks in the industry were accepting of, has been scrapped in favor of whatever formula a state regulator decides to pick. That means if the Commissioner of Business Oversight decides on an APR disclosure, which many industry trade groups believed they had already successfully lobbied against, all loans and non-loans alike would have to report an APR, a mathematical impossibility for a product like merchant cash advance. At present, however, all that is known is that the Commissioner’s choice must be an annualized metric.
According to Bloomberg, the amended version of the bill needs to get approval in both the Assembly and the Senate by Friday before the legislative session ends.
Trade associations that have weighed in on this bill include the Electronic Transactions Association, Commercial Finance Coalition, Small Business Finance Association, and the Innovative Lending Platform Association.
You can view all of our previous coverage about the bill here.
1 Global Capital Charged With Fraud by SEC
August 29, 2018
The Securities & Exchange Commission unsealed a 10-count complaint against 1 Global Capital LLC (“1st Global Capital”), its owner Carl Ruderman, and related parties on Wednesday.
The South Florida firm “fraudulently raised more than $287 million from more than 3,400 investors to fund its business offering short-term financing to small and medium-size businesses,” the complaint begins.
Investors were offered low-risk, high-return investments that 1st Global would use to fund merchant cash advance deals. Ruderman, who owned the company through a trust, misappropriated $35 million of the funds, paying a lot of it to himself and companies he controlled that had nothing to do with MCA, the SEC alleges. Beyond that, millions more went towards other pet projects like a $50 million purchase of distressed credit card debt.
But the deception went deep, the complaint lays out. 1st Global touted a default rate of only 4% despite the fact that 15-18% of their deals over the last 2 years had resulted in collections lawsuits.
By October 2017, the statements investors received showing their monthly performance were faked with the value and performance significantly inflated. By June 2018, one line item on monthly statements (labeled “cash not deployed”) reported that investors collectively had $70 million in idle cash ready to be put into deals. Meanwhile, the company itself only had about $20 million in all of its bank accounts combined, money that was being used for everything including operating expenses, salaries, and commissions.
1st Global’s alleged auditor, Daszkal Bolton, LLP, says they never audited 1st Global’s statements and haven’t had anything to do with the company since 2016. Nonetheless, 1st Global placed Daszkal Bolton’s name on statements given to investors and stated on their website that investor balances were validated by an accounting firm quarterly.
MCA Companies Have Won a “Sh*t Ton” of Cases, Judge Declares
August 27, 2018
A judge in Buffalo, New York has finally had enough with merchants trying to claim that merchant cash advances are loans.
At issue were defendants who sought to overturn a confession of judgment filed by SOS Capital. The Honorable Catherine Nugent Panepinto, who presided over the case, didn’t like that one bit, but what was more offensive to her was the manner in which the defendants tried to overturn it.
With a shit ton of case law already weighing against the defendants for filing an improper motion, Judge Nugent Panepinto went a step further by reminding the defendants that there is no merit to the argument that the subject merchant agreement was a loan.
The defendants, who seemed completely doomed to pay SOS Capital’s attorney fees, were saved only by the charm of their affable Long Island attorney.
This case was decided in Erie County, NY under Index #803512/2018.
Two Commercial Finance Consultants Charged By SEC in Ponzi Scheme
August 22, 2018Two commercial finance consultants were charged by the SEC earlier this week for their alleged role in soliciting investors to place their savings into mortgage-backed securities issued by Woodbridge Group of Companies, LLC, a company revealed to be a $1.2 billion ponzi scheme.
Barry Kornfeld and Ferne Kornfeld of Parkland, Florida, allegedly earned $3.7 million in commissions by selling unregistered securities to more than 500 investors. Barry Kornfeld was already barred by the SEC for previous securities violations, the complaint states. The Kornfelds taught a “conservative retirement, income planning and social security” class at Florida Atlantic University, where the investments were pitched, the SEC says.
FEK Enterprises, Inc. DBA First Financial Tax Group, the company the Kornfeld’s operated, is also named in the complaint.
Their LinkedIn profiles, however, currently list them as the owners of Value Capital Funding, a small business financing broker in Boca Raton, FL.
World Global Financing Bankruptcy Converted to Chapter 7
August 9, 2018Florida-based World Global Financing (WGF), who filed for Chapter 11 in May, has been ordered into liquidation following their failure to abide by the settlement agreement with Eaglewood SPV I LP.
Eaglewood’s claim on WGF comprised 98% of all creditor claims.
WGF agreed to settle with Eaglewood for $2.95 million, but WGF failed to make payments in the specified timeframe. That inevitably allowed Eaglewood to convert the bankruptcy to Chapter 7 and to simultaneously file a $6.5 million Confession of Judgment against WGF.
Details Emerge in Florida Lawsuit Against Corporate Debt Advisors
August 9, 2018
A debt settlement company being sued by Itria Ventures in Miami-Dade County, FL was asked to prove its claim that it has managed over $1.5 billion in total debt, court records show. That company, Corporate Debt Advisors (CDA), advertises that it provides debt relief for small business owners.
CDA responded to Itria’s request on June 29th with information relating to just two employees, Tony Shea and John Philbin, who combined through their previous experience have purportedly managed $1,584,000,000 of debt.
Not mentioned in their response is that each individual is prohibited from engaging in debt settlement services with Florida consumers where Corporate Debt Advisors is located.
According to the Office of the Attorney General, both Shea and Philbin previously and independently settled with the State after being investigated for running questionable debt settlement businesses. (See here and here)
In the lawsuit filed against CDA by Itria, it’s alleged that CDA is advising merchants to commit fraud by moving money owed to Itria to a new secret hidden bank account at a local bank in Florida where it will be out of reach from Itria.
This is not the first time Corporate Debt Advisors has been sued. In early July, a competitor to Itria, High Speed Capital, petitioned a New York court to turn over funds it believes CDA has in its possession for unlawful budget planning services rendered to a Florida-based business.
